Tobacco
Settlement Agreement Fund Oversight Committee

Minutes
of the<MeetNo1>1st Meeting

of the 2005 Interim

<MeetMDY1>July 12, 2005

The<MeetNo2>meeting of the Tobacco Settlement
Agreement Fund Oversight Committee was held on<Day>Tuesday,<MeetMDY2>July
12, 2005, at<MeetTime>1:00 PM, in<Room>Room 149 of the Capitol Annex. Representative
Carolyn Belcher, Chair, called the meeting to order, and the secretary called
the roll.

Following roll call and approval of the minutes for the June
meeting, the presiding co-chair, Representative Belcher, asked Mr. Keith
Rogers and Mr. Brian Furnish, executive director and assistant director
respectively of the Governor’s Office of Agricultural Policy (GOAP), to report
on agricultural diversification project applications the Agricultural
Development Board (ADB) considered during its June meeting.

In reporting on the Daniel Boone Lumber Industries project,
Mr. Rogers noted for the record that the ADB approved only $10,000 in county
funds and did not approve the allocation of state funds.

Mr. Rogers then turned to the Central Kentucky Angus Sales
Inc., which had sought $30,000 in funding during the June ADB meeting, but
received only $12,500 in county funds. He said another county also had
initially approved funding, but on the contingency that state funds were
approved. Mr. Rogers told the committee the board had declined to appropriate
state funds for the project because it had a long-standing policy of not
granting tobacco settlement moneys for stockyard improvement, development, or
renovation. He said the board viewed the project as more in the line of a
stockyard rather than a cattle sales arena or sales pavilion.

Senator Pendleton asked why the board classified the
facility as a stockyard. Mr. Rogers reiterated the board’s rationale. He
indicated that GOAP staff had recommended both funding levels for the facility,
but the board decided otherwise, and declined to grant the state funds.

Senator Pendleton said he viewed the facility as a model
sales arena. He said he was aware that dairy cattle had been sold at Central
Kentucky Angus Sales. Senator Pendleton said he viewed the facility as similar
to a farmers’ market that showcased cattle, rather than a stockyard.

In his response, Mr. Rogers said they understood the
facility had sold only Angus cattle. But Senator Pendleton said Jersey dairy
cattle had been sold there. Mr. Rogers then said the board had a concern about
the facility being restricted to a single breed. They witnesses said there was
general agreement that other breeds would be sold at the business,
nevertheless, the board did not grant state funding.

Responding to additional questions from Senator Pendleton,
Mr. Rogers said the ADB could reconsider its decision, should the committee
ask. The senator then requested that the ADB be asked to reconsider the funding
denial.

Before calling for a
vote, Chairman Belcher allowed additional questions and comments, the first
from Representative McKee, who indicated that he had visited the sales facility
and did not view it as a stockyard. He asked what was planned. Mr. Rogers then
reviewed the company’s plans to expand and upgrade existing facilities, and
improve a road.

Senator McGaha said he
recalled the ADB approving funds to improve a former tobacco warehouse in
Barren County for cattle sales facility. Mr. Rogers said only county funds were
involved. Mr. Rogers pointed out the ADB had approved moneys for cattle
marketing development through the Kentucky Beef Network and Kentucky
Cattleman’s Association. That funding, he said, was being used to pave the way
for an animal ID process at stockyards, but not for renovation or construction.
Mr. Furnish added the board had approved funds for county funds to be used for
fairground additions, sales pavilions, arenas and the like.

In subsequent
discussion, Senator McGaha said he understood that most people involved in the
selling operation, and those marketing their livestock, would be
tobacco-dependent.

At that point in the
meeting, Chairman Belcher asked Mr. James Coffey and Mr. Tim Dievert to
elaborate on their plans and give their rationale for obtaining state funds.

Mr. Coffey said they had
conducted sales in the past for breeds other than Angus. Mr. Dievert said the
Hereford Association had sold at the facility, as well as other beef breeds,
such as Charolais, Saler, Gelbray, Belted Galloway, and some dairy breeds.

Mr. Coffey said it was
unfair to liken the operation to a stockyard. He said a general description
would be to compare their facility to a value-added cooperative. He then talked
about the rigorous standards and criteria related to genetics and breeding
required before certain animals had been sold. He pointed out that he told one
county council that they would sell goats at the facility, should the request
be made.

Senator Boswell
suggested that perhaps the corporate name of the organization might be
confusing to some. In response to Representative Comer, Mr. Coffey said their
forgiveness on a state loan would have required them to directly decrease any
sales costs for sellers who were tobacco producers. Representative Comer, who
said he had visited sales at the operation, suggested that only Kentucky
producers should be allowed to receive the commission discount.

Addressing the Committee
again, Mr. Rogers asked the panel to consider that the ADB had maintained a
long-standing policy of not granting funds for livestock marketing pavilions,
for example, at county fairgrounds.

But Senator Pendleton
said the board had approved funds for farmers’ markets. Instead of dealing with
fruits and vegetables, he said, “we are dealing with livestock.” The senator
also said the board had continued to grant funds for farmers’ markets, although
some had not been successful. He said the Central Kentucky Angus Sales
representatives were making a single request.

Senator Pendleton then
made a motion for the committee to ask the ADB to reconsider its action in not
appropriating funds for the Central Kentucky Angus Sales. Senator Boswell
seconded the motion. The vote was 9-0, with one abstaining.

Continuing with his
report, Mr. Rogers responded to Senator Boswell’s question about the Jackson
County Cattlemen’s Association weed eradication project, Mr. Rogers said the
program would be available to any farmer who showed proof of tobacco
production. On another question, Mr. Rogers noted that, even though the
Department of Agriculture has a weed eradication program, the Jackson County
association decided to launch its own program.

On another project,
Senator McGaha asked if tobacco settlement funds would be used to construct
bathrooms as a part of a Mackville Communtiy Development certified kitchen
project. Mr. Rogers said the bathrooms would be required as a part of a
certified kitchen setup.

Mr. Rogers reviewed
details regarding the Agricultural Development Board’s approval of $121,961 for
the Central Kentucky Growers Association. He indicated the board had approved
funds to assist other co-ops affected by financial losses and did the same for
Central Kentucky Growers. Responding to a question from Co-chairman Belcher,
Mr. Rogers estimated the board had granted $700,000-plus to the co-op thus far.

He pointed out that
Central Kentucky Growers was unique because it had developed a year-round
business, whereas other co-ops were seasonal. He also elaborated on the impact
another firm’s bankruptcy had on the co-op. Representative McKee indicated that
producers believe the growers association is a good cooperative.

Responding to a question
about a Graves County Soil Association biodiesel feasibility study, Mr. Rogers
said he believed that people involved were not the same ones who were
associated with an aquaculture cooperative in Graves County.

Committee members raised
some questions about the John F. Dance Enterprises project in Woodford County.
Mr. Rogers said the company was unsuccessful in obtaining ADB agritourism grant
funds. But the county itself decided to grant some funding.

Turning to the no-funded
projects list, Mr. Rogers detailed the board’s decision to close the Northern
Kentucky Regional Farmers’ Market application. The application was outdated and
the applicant lacked adequate matching funds, he explained. Co-chairman Belcher
pointed out that a commitment of funds from the applicant was desirable. During
discussion, Mr. Furnish said that, since the application was turned in, many
other farmers’ markets had opened in the region.

Next, Mr. Rogers briefed
the committee on the status of the Phase II payment process. He said over
136,000 checks had cleared the bank and that 25-30 people had contacted them
about not receiving their checks. According to Mr. Rogers, the original
application process for quota holders was thorough, and it was important for
applicants to keep copies of their documents for future reference. He said they
continued accepting applications through May. (There was no certification
process for tobacco producers.) Because existing funds were divided among
existing applicants, there will be no funding available for those affected by
lost documentation, he said.

Responding to a question
from Co-chairman Belcher, Mr. Rogers said GOAP staff had been meeting with
county council groups of late. Contrary to an allegation raised, he said, those
meetings have been open to the public, although invitations were only to
extension agents, county council members and the like.

The committee then
turned to reports from agencies that receive a portion of state tobacco
settlement funds.

Mr. Glenn Jennings,
executive director of the Office of Insurance, reviewed Kentucky Access, a
state high-risk insurance program. According to Mr. Jennings, since the General
Assembly created Kentucky Access in 2000, the number of individual insurers in
the state had grown from two to eight. He said more than 100,000 Kentuckians
were insured in the individual market. But he said 14% of the state’s
population were still uninsured. Approximately 3,300 Kentuckians are insured
through Kentucky Access. The program had about $44 million in assets as of May
31, he said.

Ms. Irene Centers
reported on the Kentucky Tobacco Prevention and Cessation Program. According to
Ms. Centers, 91% of tobacco settlement dollars allocated to the program are
given to local health departments. She reported that more than 96% of middle
and high schools in the state do not permit smoking on school grounds. But she
said 24% of Kentucky women smoke during pregnancy, twice the national average.

The committee heard from
Ms. Karen Jones and Ms. Teresa Barton of the Kentucky Agency for Substance
Abuse Policy. They said KY-ASAP had 69 local boards covering 110 counties.
Twelve new local boards had completed strategic planning training. The start-up
funding for a local board is $50,000, they reported.

Finally, the committee
heard reports from Drs. Donald M. Miller and Timothy W. Mullet, of the
University of Louisville Brown Cancer Center, and the University of Kentucky
Markey Cancer respectively. Both reported on cancer research projects under way
at their institutions.

Copies of their materials are on file with
meeting documents in the LRC Library.

Requests for additional information from
witnesses included detailed budgetary and other information about Kentucky
Access, Tobacco Prevention and Cessation, and KY-ASAP programs. The committee
also requested additional information regarding the radon issue, discussed during
the Brown-Markey portion after Representative Hoffman raised the issue.